The Financial Conduct Authority (FCA) is on track to publish the final rules for its Sustainability Disclosure Requirements (SDR) after long delays.
Speaking at a Good Money Week (GMW) event organized by SRI Services on October 5, manager of the FCA’s ESG policy and advisory team Sara Woodroffe (pictured) said the UK regulator was grateful for the “excellent engagement” with all stakeholders around the world. industry following the consultation, adding that the team has sought to “balance concerns and find a middle ground” while also putting the consumer at the heart of the requirements and aligning with consumer duty.
In October 2022, the FCA announced its long-awaited proposals on fund labels – ‘focus’, ‘improvers’ and ‘impact’ – and disclosure requirements at two levels: one for consumers that outlines the product’s key sustainability-related features, and more detailed disclosures for institutional investors.
The FCA then held consultations with the industry until the end of January 2022, with the aim of finalizing the rules by mid-2023. But in July, in a regulatory initiatives network updatethe FCA said there had been a “range of comments” and that the policy statement and final rules would be deferred until the fourth quarter.
Speaking at the GMW event, Woodroffe said global ESG assets are expected to reach $34 trillion in the next three years “the sustainability claims are high”. She pointed to FCA research showing that 70% of investors agree that investment claims around sustainability are questionable.
“We know the landscape is complicated for consumers and there is a risk of greenwashing. We must promote transparency in the market and investors and consumers are at the heart of our work.”
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She said the FCA has started discussions with the industry about how “the integrity of the market can be protected with a clear framework”.
Referring to the challenges in the EU market with the Sustainable Finance Disclosures Regulation (SFDR), where funds are labeled Article 6, 8 or 9, Woodroffe emphasized the importance of avoiding a hierarchy in SDR fund labels.
“There is no hierarchy in the labels and that is how consumers want to see it. Each [label] is designed to achieve a different purpose,” she said.
“SFRD has become a labeling regime and a hierarchy, which we do not want to achieve. However, we have tried to be compatible for the benefit of companies subject to both regimes.[But}wealsowantedourSDRtoshowotherjurisdictionswehaverobustrulesandwearehelpingthismarketgrow”[Maar}wewildenookdatonzeSDRandererechtsgebiedenzoulatenziendatwerobuusteregelshebbenendatwedezemarkthelpengroeien”[But}wealsowantedourSDRtoshowotherjurisdictionswehaverobustrulesandwearehelpingthismarketgrow”
Woodroffe also hinted at how the FCA will support firms in the future following the feedback.
“We had a huge response to the consultation and we are very grateful for that – it is important to get it right.
“We heard that the labels and marketing rules were too strict, and then we heard that we were in exactly the right place.
“We have been working to balance these concerns and find a middle ground.”
She also highlighted the anti-greenwashing rule and emphasized the need for “products to do what they say on the tin”. However, the industry expressed confusion over the best way to implement this, and Woodroffe confirmed that the FCA will release guidance on this by the end of the year.
“We have pushed back the publication date to the fourth quarter of this year – and we are on track.”
Coutts ESG director: SDR will be hard work, but worth it – ESG Clarity